Should You Move Some Money Out of Savings in 2023?

It's a move that could work out -- or backfire.

Many people struggle to build savings. In fact, as of 2021, a good 32% of people couldn't rely on their savings to cover a $400 emergency, reports the Federal Reserve.

But what if you're in the opposite situation? What if you have a really robust savings account balance, to the point where you think you might even have a little too much money sitting in cash? You may be tempted to take money out of your savings in 2023. But is that a smart move?

The quick answer? It depends.

The upside of moving money out of savings

These days, savings accounts are actually paying a pretty generous amount of interest. That wasn't the case for many years, so now is a good time to have a little extra money in the bank.

But while you might snag, say, a 3% interest rate on the money you have in a savings account, you might score three times that return by investing money in a brokerage account. In fact, now's a good time to pump more money into the stock market because it's had a tough year.

At this point, stock values are still down compared to where they sat a year ago. It's in your best interest to buy stocks when they're down, and raiding your savings could be your ticket to doing that.

The downside of moving money out of savings

While the U.S. economy is strong right now, many financial experts are convinced we're headed for a recession. And if that happens, you might need extra money in savings to get yourself through a period of unemployment.

Because of that, it's easy to argue that it's not the best idea to move money out of savings in 2023. If a recession strikes and you're hurt financially, you'll risk landing in debt if you don't have enough cash reserves to cover your bills.

What's the right call?

It may be a good idea to move some money from a savings account into a brokerage account in 2023. But before you do, make sure you're leaving yourself with a decent-sized emergency fund.

At a minimum, you should always aim to have enough savings to cover three full months of essential living expenses. But given all of the recession warnings we've been hearing, a better bet right now is to leave yourself with enough money to cover at least half a year's worth of bills.

In fact, some experts even say that in the wake of the COVID-19 pandemic, it's a good idea to have enough cash in savings to cover up to a year of bills. Others might say that's pretty extreme, but saving enough to pay for six months of expenses is definitely a smart idea at a time like this.

If you can do that while freeing up money for investing purposes, go for it, as long as you understand the risks involved. Otherwise, you may want to err on the side of having extra savings until economists start to adopt a more positive outlook.